Challenges in implementing competition p&l in aec

May’25,2015

UNIVERSITI KEBANGSAAN MALAYSIA SEMESTER II SESI 2015/2016

IJAZAH SARJANA UNDANG-UNDANGInternational Law & 3rd World Countries (UUUK

6175)

The challenges of implementing

Competition Policy & Law in Asean at the Regional & National

Level Prepared by: MAS&INDO team

May’25,2015

CONTENTS

1) Introduction

2) Issues

3) Brief Glance on Competition Policy & Law

4) The Challenges of Implementing Competition Policy & Law in AEC

5) Conclusion & Recommendations

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CONTENTS

1) Introduction

2) Issues




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2020

1967 1997 2003Adopt AEC Blueprint

Bangkok Declaration ASEAN CommunityCebu Declaration

20072015

ASEAN Vision 2020 Bali Concord II

ASEAN Community:- that can achieve higher levels of economic dynamism, sustained prosperity, inclusive growth and

integrated development of ASEAN.

Target

Single market and production Base

Single market and production Base

FocusCompetitive

Economic RegionCompetitive

Economic RegionEquitable Economic

DevelopmentEquitable Economic

DevelopmentIntegration into the Global Economy

Integration into the Global Economy

Free flow of goods

Free flow of services

Free flow of investments

Free flow of capital

Free flow of skilled labor

Priority integration sectors

Food, agriculture and forestry

Competition Policy

Consumer protection

Intellectual property rights

Infrastructure development

Taxation E-commerce

SME development

Initiative for ASEAN integration

Coherent approach towards External Economics Relations

Enhanced particpation in global supply networks

Human Resource Development

Research & Development

2014

Post-2015 ASEAN

THE ASEAN ECONOMIC STRATEGIES

Objectives:- • To identify the challenges faced in implementing the

competition policy & law in ASEAN member states

• To identify steps taken to narrow down the gap in implementation of the competition policy in ASEAN states that have not implement competition policy

• To identify whether there is any element of fragmentation and the impact of it.

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CONTENTS

1) Introduction

2) Issues




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ASEAN Economic Community:-

• Single Market and Production Base• Competitive Economic Regions • Equitable Economic Development • Integration into Global Economy

THE ASEAN Economic Community Objectives

Which member states that have not yet implement their National

Competition Policy?

For those member state that have implement competition policy and law → is there any diversification in

the framework and implementation?

Does the differences in the f/work causes any problem at regional level?

Is there any way to harmonize the differences?

National level: is the competition law applicable to all industries?

To have a highly competitive economic region

Why the delay in implementation? Issues Identified

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CONTENTS

1) Introduction

2) Issues




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In a Nutshell:- Brief information on Competition Policy

1) Definition of Competition Law:-The British Competition Commission defined competition as “a process of rivalry between business seeking to win over customers.”

2) General Concept of Perfect Competition:-

Consumer Surplus means:- a value of the goods for the consumer is higher than the actual price paid. Etc: Value of Goods is RM7, but Customer pays RM6.

Producer Surplus means:- When there is a difference between selling price and actual value of the goods

Example of perfect market competition:- A ( a seller) think the value of his goods are worth RM5 and B (a buyer) thinks that the goods is worth RM7. The result of perfect competition will be when A sells his goods at a price in between i.e RM6.

Result:- A as the producer is making a producer surplus of RM1 – as he sold the goods more than he had valued and at the same time, B as a consumer has made a consumer surplus as he could buy the goods less than what he expected.

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3) General Concept of Competition Policy Framework:-

4) Objectives & Benefits of Competition Law:-

a) Control the market structures and behavior and the redistribution of wealth and power;

b) To guarantee the operations of effective market mechanism;

c) To protect the competition process itself and ensure that the firms operating in the market do not harm competition.

d) It forces the market players or undertakings to be more efficient, innovative and responsive to consumer demand.

In a Nutshell:- Brief information on Competition Policy

General concept of Competition Policy

Abuse Based System Prohibition Based System

• The control item is based upon some finding of an abuse behavior.

• Any undertakings or agreements that have effect on competition are usually allowed.

• Once the abuse behavior has been established, then the agreement will be found against competition law.

• It will look immediately at the starting point of the agreement whether the intention is to restrict or hinder competition.

• If it does have, then this agreement is prohibited.

May’25,2015

Agreements (which are horizontal or vertical, which have object of hindering competition will be prohibited.

Supplier Supplier Supplier

Wholesaler

Distributor

Customers

Horizontal Agreements

Vertical Agreements

KEY POINT: Horizontal and vertical agreement between enterprises are PROHIBITED if their OBJECT or EFFECT is to SIGNIFICANTLY PREVENT, RESTRICT, DISTORT COMPETITION

In a Nutshell:- Prohibition in Competition Policy

May’25,2015


Supplier Supplier Supplier


Horizontal Agreements

Key point: Horizontal agreements between enterprises which have the object to:- • Price fixing •Fix trading conditions •Limit or control production, market outlets, market access, development, technology, investments•Bid rigging

ARE PROHIBITED

Bid rigging Controlling market outlets

Examples of prohibited horizontal agreements

Cartel activity

May’25,2015


Supplier

Wholesaler

Distributor

Customers

Vertical Agreements


Key point: Vertical agreements which are at different levels of suppliers who have the object such as:- •Resale price maintenance, fixed price •Exclusive territory •Exclusive purchase/supply @ tying •Non-compete

ARE PROHIBITED

Fixed pricing

Exclusive territory & No discount

Exclusive supply

Tying purchase

Examples of prohibited vertical agreements

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Factors indicating dominance:•Large market share •Market concentration •Barriers to entry & exit •Degree of buyer power

Not an offence to be dominant but if abuse the dominant position, it is an OFFENCE

Examples of abuse of dominant position

Predatory behaviour

Controlling market outlets

Buying up scarce intermediate goods required by competitors without justifiable reasons Abuse bargaining position

Discrimination

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CONTENTS

1) Introduction

2) Issues




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Competition Policy?


Why the delay in implementation?

Challenge No. 1






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ASEAN MEMBER STATES

National Competition

Law

Authority administering the National Competition

Law

Does the agency

also take on

functions to protect

consumer interests?

Are there specific

sectors that come under

sectorial regulators with own

competition law?

Prohibition on anti-

competitive Agreements?

Prohibition against

abuse of dominant position

Prohibitions against anti-competitive

mergers

Main exemption from the

Competition Law

AdjudicationAppeal

Leniency Program

Does national competition

law have settlement provisions?

Criminal liability for breaching

prohibitions against anti-competitive conduct?

Rights of

private action

Brunei Is in the

process of drafting

Not available Not

available Not

available Not available

Not available

Not available

Not available Not available Not

available Not

available

Not availab

le

Cambodia

Is in the process of

finalizing the draft

Proposed to be Cambodia Competition

Commission – might change

No. There is another

agency No sectorial Yes Yes No

Yes – and this law does not apply to

small business

Yes Yes YesNot

available

Lao PDR

Is in the process of

drafting new law

Division on Consumer

Protection & Competition

Yes Yes Not available Not

available Not

available Not available Not available

Not available

Not available

Not availab

le

Myanmar Still drafting Not available Not

available Not

available Not available

Not available

Not available

Not available Not available Not

available Not

available

Not availab

le

Challenge No. 1:- Why BCLM have not implement Competition Policy?

The current status of competition policy in BCLM

May’25,2015

BCLM Difficulties in Implementing Competition Policy at the National Law

ASEAN Member States Justifications

Brunei It’s a small country and are looking at the suitable system for their country.

Cambodia Due to global financial crisis, it gave impact on their export activities. Due to that they have to restructure their structural policy. For example:- they are focusing on agricultural development and rural infrastructure;. Challenges faced:- The challenge of building and upgrading its infrastructure for example in its agricultural sector, to turn it into the commercial mainstream. Milled rice exports could become and engine and thereby will be able to help reduce poverty. However it will be not be able to do so if the export procedures have not been streamlined and the milling process made more efficient. The challenge of creating productivity in human capital development. Cambodia’s education and technical and vocational education and training systems must be reformed where the enrolment rates at all levels are very low.

Laos PDR Reformed national policies:- Policy instruments that sustain high growth along controlling inflation; Diversifying product structures for export; Fiscal reforms Challenges faced:- to diversify its products and services for export and challenges in human capital development.

Myanmar Reformed national policies:- Extensive agenda of reforms are needed – fiscal reforms, regulatory reforms and social reforms, Development of financial frameworkChallenges faced:- pre 2010, its political scenario was not stable which led to less foreign investment. However, post 2010, there have been political reforms and it is expected that due to its stability, will create the interest of foreign investors

Common problems that CLM faced are:- lack of technical assistance, the needs are different in terms of capacity building, lack of experts, lack of training and exposure in preparing project proposal paper and lack of coordination among the line agencies at the national level & among relevant ASEAN Sectorial bodies at regional level.

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Competition Policy?


Why the delay in implementation?

Challenge No. 2



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ASEAN-6 : Differences in Competition Law FrameworkCompetition Law

Framework Indonesia Thailand Singapore Malaysia Philippines Vietnam

Prohibition on Vertical Agreement

Not expressly mention


Expressly excluded Expressly included in s. 4 CA 2010



Threshold for abuse of dominant position

a) Single entity:- market share 50% and above

b) More than one enterprise:- market share of 75% and above


b) More than one enterprise:- market share of 75% and above

There is no presumptive market share threshold as market share on its own does not determine market dominance. However an undertaking with a market share of 60% and above is likely to indicate market dominance.

There is a presumptive market share threshold and market dominance is determined by applying the SSNIP Test, i.e. a price range of 5%-10% increase to represent a small but significant increase in price to determine the relevant market

Abuse based system – where the monopolies are not prohibited per se but may exists to aid the Govt. in carrying on an enterprise or to aid in the performance of various services & functions in the interest of the public.


b) Combine 2 enterprise:- market share of 50% and above

c) Combine 3 enterprise:- market share of 60% and above

Mergers process and mergers threshold

• Art.28• Need to notify

merger to authorities

• No filling fees• Approval

process: 90 days maximum

• Sec. 26 • If mandatory

merger and threshold met, must notify

• But currently no threshold defined

• No filling fees• Approval


• Sec. 54 • Not compulsory

to notify – but encouraged

• Encouraged to do self-assessment

• Have filling fees • Approval


• No merger control at present

Mergers of listed companies requires prior approval the Securities Exchange Commission before becoming effective.

• Sec.16• Mandatory

merger notification if threshold are met.

• Have filling fees• Approval


Challenge No. 2 (a) :- Does the diversification in different competition law poses problems at the

regional level?

May’25,2015

ASEAN-6 : Differences in Competition Law FrameworkCompetition Law

Framework Indonesia Thailand Singapore Malaysia Philippines Vietnam

Criminal Sanctions Yes Yes No No Yes No

Rights of private actions

No Yes Yes Yes Yes No

Companies have to comply with the different competition laws applicable in each of the ASEAN member states. For examples:- a) Cartels and anti-competitive agreements:- M’sia expressly prohibits vertical agreements that have anti-

competitive objects/effects, while Indonesia, Philippines, Vietnam & Thailand does not expressly prohibits while Singapore expressly excludes vertical agreements → could cause several hurdles to companies when dealing with cartel activities.

b) In terms of dominance:- cross borders transactions and companies with high market shares have to ensure that commercial strategies are applied in the manner that takes into account the differences on dominant position.

c) In terms of mergers, cross-border mergers have significantly increased within the ASEAN region with the liberalization of the market and implementation of the free trade and economic partnership agreements. With the exception of Malaysia, all the five (5) ASEAN member states have a merger control law in place. The difficulties will arise when the companies are coordinating a merger filing requirement with different procedural regimes, for example in some of the ASEAN member states, mergers requires mandatory notification. Therefore, the companies that are planning or coordinating a merger need to plan carefully in order to avoid penalties for non-compliance.

Challenge No. 2 (a) :- Does the diversification in different competition law poses problems at the

regional level?

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Challenge No. 2 (b) :- At national level, are all the industries subjected to Competition Law ?

State Owned Enterprise (SOE)

①Concept of Protectionism

Private Firms/Business

Protected from Competition Law

Subjected to Competition Law

Protectionism:- “the state is potentially the best friend of the would be monopolist. The State can erect and enforce entry barriers. The State can enact legislations that hamper the ability of competitors to vie for crucial inputs or the business of big customers.”

The state protects by creating an uneven playing field and also by granting benefits to SOEs not offered to private firms.

① Outright subsidization:- is when SOEs receive direct subsidies from Govt. in form of financial assistance, in kind benefits such as land usage

②Concessionary financing & guarantees:- is when the SOEs received credit benefits directly from Govt. and interest is below market interests rates.

③Exempted from regulator regimes:- for example exempted from bankruptcy rules, given exclusive rights etc in postal or telecommunications services

④ Justifications by Govt:- • SOEs are needed to maintain public service

obligations; • Is a tool for industry policy • A tool to protect country fiscal revenue

②Examples of Protectionism:-

May’25,2015

CONTENTS

1) Introduction

2) Issues




May’25,2015

Conclusion:- 1. AEC was not able to meet its target to have all its state members to implement competition policy and law at their national level by 2015 due to

some of members (CLM) internal challenges;

2. About the competition law framework at the regional level, there are differences identified such as the process and procedures for mergers.

3. Meanwhile, at the national level, the implementation of competition law is not realistically applied to all industries since the State Owned Enterprise are mostly protected from it. This practice indicate a poor corporate governance by the said government.

Recommendations:- 4. CLM is a new member of the ASEAN – the challenges in implementing competition law are due to lack of resources, technical and expert

knowledge, fragmented organization and power to implement competition policy, less political and stakeholders’ support.

5. It is beneficial to CLM to implement competition policy - for example in terms of agriculture, food and forestry, CLM can increase their productivity for example reducing the costs of inputs, including agricultural tractors, tools and machinery, fertilizers and pesticides and transport evidences, removal of barriers to trade. By removing this barriers, it will attract foreign investment.

6. Towards harmonizing the different framework in Competition policy in ASEAN, the AEGC had introduced the ASEAN Regional Guidelines on Competition Policy in 2010. The Regional Guideline on Competition Policy intent to provide a regional harmonization of competition policy and law to be applied among its member states.

7. Meanwhile for the issue of differences framework of competition law applied by the ASEAN-6 member states, although it is understandable that cultural, social and economic factors have played in the important role in the design of each jurisdiction competition policy, it is recommended for the ASEAN-6 to find some common ground among the ASEAN members. At least if all the ASEAN members have a common clause in competition, it will help to ease any bilateral or regional economic partnership agreement with other countries such as the EU, where EU has paused negotiations with ASEAN and is now pursuing bilateral Free Trade Agreements with individual ASEAN member states.

8. It will be useful if the ASEAN countries were to implement “competitive neutrality” framework as practiced by the OECD countries. Competitive neutrality as defined by Australia is it requires that government business activities should not enjoy net competitive advantages over their private sectors simply by virtue of public sector ownership. These framework address the anti-competitive behavior of the SOEs by establishing mechanism to identify and eliminate such competitive advantages that the SOEs have such as taxation, financing costs and regulatory neutrality. By implementing this framework, it can remove resource allocation distortions arising out of public ownership and improve competitive processes.

Conclusion & Recommendations

May’25,2015